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 At issue are two high-profile cases being heard by the U.S. 2nd
Circuit Court of Appeals. The cases involve U.S. companies that are
trying to reach assets held overseas by UK-based Standard Chartered
Plc and Bank of China.
In a ruling on Tuesday, a three-judge panel for the 2nd Circuit in
Manhattan delayed a decision on the lawsuits, saying they raise
policy concerns that should be resolved by the New York Court of
Appeals.
"The questions presented by these appeals involve important issues
of New York state law and policy that are likely to recur and may
have important effects on a highly regulated industry," the 2nd
Circuit court wrote.
At stake is whether companies can evade the enforcement of judgments
by keeping assets in overseas banks. The outcome could be important
to foreign banks with New York branches, which are subject to New
York courts' jurisdiction.
UZAN DISPUTE AT STAKE
In one of the two cases, Motorola Credit Corp, part of Motorola
Solutions, has been trying for over a decade to recover billions of
dollars from Turkey's Uzan family, which ran the Turkish mobile
phone company Telsim.
The Uzans borrowed more than $2 billion from Motorola Credit between
1998 and 2000 for Telsim, but diverted much of the money for other
uses, according to court documents.
Lawyers for the Uzans and Motorola could not immediately be reached
for comment.
Motorola won a restraining order to freeze the Uzans' assets held by
Standard Chartered at its branch in the United Arab Emirates, but
regulators in Jordan and the United Arab Emirates intervened,
according to court documents.
In May, the U.S. District Court in New York's Southern District
found that New York law precludes Motorola from restraining the
Uzans' assets in Standard Chartered's foreign branches. That
decision was appealed.
In the second case, privately held Tire Engineering and Distribution
of Sarasota, Florida, has been trying to get the Bank of China to
turn over money the tire maker is owed after winning judgments
against China-based competitors.
The bank has refused, saying Chinese banking laws prohibit it from
complying with U.S. court orders to freeze customer bank accounts.
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Tire Engineering in December asked the U.S. District Court in New
York's Southern District to order Bank of China to turn over the
assets, but its case was dismissed in April. Tire Engineering
appealed to the 2nd Circuit.
Lawyers for Tire Engineering and Bank of China could not immediately
be reached for comment.
GLOBAL BANKING GROUPS STEP IN
Global banking organizations have opposed allowing U.S. courts to
reach assets of bank customers in another country.
In a friend-of-the-court brief filed last year in the Motorola case,
the Institute of International Bankers, the European Banking
Federation and the New York Bankers Association said that compelling
banks to turn over assets held at overseas branches would create
"serious problems for international banks doing business in New
York" and hurt the city's position as a world financial center.
To resolve the issues, the 2nd Circuit on Monday asked the New York
Court of Appeals to decide whether a "separate entity rule"
precludes a U.S. court from ordering banks with a New York branch to
turn over assets held in foreign branches. The separate entity rule
is a long-held doctrine that treats bank branches as separate for
purposes of enforcing judgments.
Under the rule, courts have long held that if a foreign bank has a
branch in New York, U.S. creditors cannot reach assets of its
customers outside the country. However, New York's highest court
"has never unequivocally approved or disapproved of the separate
entity rule," the 2nd Circuit wrote in its ruling.
The cases are Motorola Credit Corp v Standard Chartered Bank, No.
13-2639; and Tire Engineering & Distribution et al v Bank of China
Limited, No 13-1519, both in U.S. Court of Appeals for the 2nd
Circuit
(Editing by Kevin Drawbaugh and Dan
Grebler)
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